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What We Read Today 07 December 2015

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every day in the early am at GEI News (membership not required for access to "The Early Bird".).

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Articles about events, conflicts and disease around the world

Global

  • Banana Variety May Go Extinct As Lethal Fungus Threatens World's Favorite Fruit (Tech Times)  The world's favorite fruit, the banana, is in trouble as an untreatable fungal disease that has been threatening banana crops in Asia is now spreading to other parts of the world, scientists warn.  Fusarium fungus, a soil-borne fungus otherwise known as Panama disease, is threatening banana crops worldwide and may lead to the fruit's extinction—again. This is not the first time that a variety of banana was wiped off the planet by this lethal fungus.  Fifty years ago, people were eating bananas that tasted better, lasted longer and did not require artificial ripening. The Gros Michel banana variety was widely popular worldwide until a fungal disease caused it to become commercially extinct.

U.S.

  • Trump Wants 'Total and Complete Shutdown' of Muslims Entering U.S. (Bloomberg)  The Republican front-runner's statement comes one night after President Obama warned against singling out members of the religion.

  • US Justice Department to investigate Chicago police (Associated Press, MSN News)  The Justice Department will investigate the patterns and practices of the Chicago Police Department, U.S. Attorney General Loretta Lynch announced Monday, nearly two weeks after the release of a video showing a white Chicago police officer shooting a black teenager 16 times and ahead of the expected release of similar footage in another death at the hands of an officer.  Lynch said the investigation will focus in particular on use of force and deadly force, including racial, ethnic and other disparities in use of force, and its systems of accountability. It was opened after a preliminary review, she said.

  • Dad: San Bernardino shooter agreed with ISIL, 'obsessed with Israel' (USA Today)  The father, who is also named Syed Farook, told La Stampa that his son took on an overly conservative outlook on Islam and at least once expressed support for ideas promoted by Abu Bakr al-Baghdadi, the leader of the Islamic State militant group, also known as ISIL or ISIS.  The father said he counseled his son to be patient because, he said, in time political changes in the Middle East will accomplish his desires.  But Syed Rizwan Farook was not dissuaded, the father said.  Specific statements:

"He said he shared the ideology of al-Baghdadi to create an Islamic state, and he was obsessed with Israel."

"I kept telling him always: stay calm, be patient, in two years Israel will no longer exis.  Geopolitics is changing: Russia, China, America too, nobody wants the Jews there."

Sweden

  • Sweden Declares War on Cash, Punishes Savers with Negative Interest Rates (Frank Holmes, U.S. Global Investors)  FH has contributed to GEI.  All across Sweden, cash—the physical kind, not cash in the bank—is disappearing. Many if not most businesses have stopped accepting it. ATMs are now as uncommon as pay phones. Churchgoers tithe using mobile apps. Fewer and fewer banks even accept or dole out cash.  Below is the chart showing the decline in the average yearly value of Swedish banknotes in circulation, which have seen a 25% decline over the past 10 years.  Transactions are increasingly electronic.  Cash’s demise appears to be orchestrated by Sweden’s central bank, which of course stands to benefit from the switch. In a purely electronic system, every financial transaction is not only charged a fee but can also be tracked and monitored. Plus, taxes can’t be levied on cash that’s squirreled away in Johan’s sock drawer.  Since July, interest rates in Sweden have lingered in negative territory, at -0.35%, forcing account holders to spend their money or else see their balances slowly melt away. Negative rates can also be found in Denmark and Switzerland, where they’re as low as -1.25%. The Swiss 10-year bond yield plummeted to -0.40% on Tuesday, which means people are paying the government to hold their “investment.”  Econintersect:  In the brave new world cash is trash.

sweden.money.circulation.2005.2015

Finland

  • Finally, Someone Does Something Sensible: Finland To Bring In A Universal Basic Income (Tim Worstall, Forbes)  There’s rather a lot of discussion around these days about the merits of a universal basic income. We have, for example, those who tell us that the robots are about to steal all our jobs and therefore we need to tax the capital owners in order to provide that basic income for all. Well, maybe, but it’s not going to work out that way. However, that universal basic income is still a startlingly good idea simply because it’s better than any of the various welfare systems we have at present. But do note: It works by being universal and basic.  Here is more from A guaranteed annual income for Finland?  (Tyler Cowen, Marginal Revolution):

The Finnish government is currently drawing up plans to introduce a national basic income. A final proposal won’t be presented until November 2016, but if all goes to schedule, Finland will scrap all existing benefits and instead hand out 800 euros per month—to everyone.

It sounds far-fetched, but it’s looking likely that Finland will carry through with the idea. Whereas several Dutch cities will introduce basic income next year and Switzerland is holding a referendum on the subject, there is strongest political and public support for the idea in Finland.

A poll commissioned by the government agency planning the proposal, the Finnish Social Insurance Institution or KELA, showed that 69% support (link in Finnish) a basic income plan. Prime minister Juha Sipilä is in favor of the idea and he’s backed by most of the major political parties.

Turkey

  • Russian sanctions on Turkey to have limited effect: EBRD (Hurriyet Daily News)  The effect of sanctions imposed on Turkey by Russia will be limited, the European Bank for Reconstruction and Development (EBRD) said today (07 December).  The Russian sanctions were imposed after a fighter jet which had violated Turkish airspace was shot down on 24 November. Moscow later announced it was a Russian aircraft.  The retaliatory measures imposed by Russia ranged from restricting visa-free travel to a ban on imports of certain foodstuffs and a ban on the sale of Turkish holiday packages to Russians by tourist agencies.  However the bank pointed out there were risks that cut both ways - both the Turkish and Russian economies had strong economic ties in energy, food, tourism and construction projects.  See also Turkish economy risks losing $9 billion over Russia crisis: Deputy PM.  As for the EBRD assessment:

“The sanctions may reduce Turkey’s GDP growth in 2016 by around 0.3-0.7 percentage points, if they remain in force over the next year and are fully applied, with most of the impact related to tourism occurring around the mid-year.”

Japan

  • Bank of Japan to Keep Close Watch on Effects of Volcker Rule (The Wall Street Journal)  Bank of Japan Gov. Haruhiko Kuroda said Monday the so-called Volcker rule requires close monitoring, signaling his concerns over how the U.S. financial-regulation overhaul would affect the rest of the world.  Mr. Kuroda also warned against tightening financial regulations to the point of stunting economic growth.

China

  • China saw record capital outflows in November, Capital Economics says (CNBC)  The constant stream of capital outflows from China that have bedeviled global financial markets look set to reach a record in November, according to estimates from Capital Economics.  Julian Evans-Pritchard, China economist at the Singapore office of Capital Economics, has estimated that net capital outflows totaled $113 billion last month, accelerating from $37 billion in October.  But getting an accurate picture of how much money is actually fleeing China is somewhat tricky.  Data released Monday showed China's foreign exchange reserves fell by $87.2 billion in November to $3.44 trillion. Evans-Pritchard's calculations suggest that fluctuations in exchange rates accounted for $30 billion of that reduction, leaving $57 billion in foreign exchange sales by the central bank.  Combining the foreign exchange sales with Capital Economics' trade surplus estimate of around $55 billion for November (official data are out Tuesday) leaves net capital outflows at $113 billion.

  • Scared of a China hard landing? You should be (CNBC)  China's economy has slowed steadily since 2010, when gross domestic product (GDP) growth last topped 10 percent. China's President Xi Jinping is predicting 6.5% GDP growth next year and the International Monetary Fund is forecasting 6.3%.  However, Oxford Economics, an advisory firm, has put the world through a stress test to show what would happen if Chinese growth slowed to 2.4% in 2016 and only recovered to 5% after five years.  Societe Generale has estimated that these would be some of the consequences:

  • The S&P 500 could fall by as much as 60%.  Know what that would be like?  Remember 2008-2009?

  • ZIRP (zero interest rate policy) would continue for years more.

  • Oil would remain between $35 and the low $40s for the next two years.

  • Global GDP growth would be about 1.7% in 2016 compared to current estimate of 3.0%

  • Asian economies woulf take a GDP hit averaging around 3%.

  • Developed western economies would suffer GDP levels about 1% lower than otherwise.

  • Commodity suppliers such as Australia would be hit the hardest, Russia more than the others.


U.S. High Yield Bonds vs. Leveraged Loans 2015 (Walter Kurtz, Sober Look, Twitter)  High Yield bonds are down more than 13% from the high ih early March.

Other Economics and Business Items of Note and Miscellanea

  • Baby Boomers Blamed for Clog in Housing (Realtor Mag)  Some economists say the baby boomers aren’t selling their homes like previous generations did and not downsizing fast enough, which is leading to shortages of homes for sale and rising prices.   Sean Becketti, chief economist of Freddie Mac, says that baby boomers are:

 “... clogging up the whole chain of home sales.  They appear to be staying in the family home longer than previous generations, and the imbalance between housing demand and supply continues to boost prices.”

  • Democracy’s depressing descent into division (The Economist)  Part of the reason for the rise of extremism is economics; the failure in recent decades to generate real income gains for workers and the financial collapse of 2007-2008. Economists argue about the causes for these developments - skill-biased technological change, globalization or political capture (a wealthy elite funds politicians who then devise policies that help the elite). If the first two factors are to blame, then we really need to worry since there is little we can do about it (read The Rise of the Robots, the book that won the FT Business book prize if you want to get depressed).  On the most pessimistic view, one can see such diverse trends as the rise of Le Pen in France, the debate over free speech in American universities and the challenge of Islamic fundamentalism as signs that liberal democracy is in remorseless decline. But history suggests it is more likely to commit suicide (by electing a party that does not believe in it) than to be murdered by outsiders. In the end, one has to hope that the broad mass of the public will turn away from the extremes when faced with the prospect of them getting into government. But someone, somewhere, may even now be finishing the first draft of "The Strange Death of Liberal Democracy". 

  • What Is Post Crash Economics (and Why Should You Care)? (Post Crash Economics Society)  The Post Crash Economics Society (PCES) is a group of economics students who believe there is something missing from our education. Economics is a central issue in the modern world and yet what we are taught is disconnected from the economics we hear about every day: recessions, inequality, immigration, the NHS, austerity and the digital revolution. Instead of studying these crucial issues and the different perspectives on them, students only learn about the neoclassical school of thought. This means economics graduates are ill-equipped to deal with the problems faced by the world today, which is why PCES are campaigning for reforms to the curriculum so that it is more pluralistic, critical and connected to the real world.

  • Cash Sales Are Rising Here (Realtor.com)  Cash sales may be far from their peak of 41.1 percent in February 2011, but the share of buyers paying with all-cash did show an uptick recently. For the third consecutive month, cash sales in real estate were on the rise, accounting for 28.9% of all sales during October, up from 28.4 percent the previous month but still down from 30.4% a year ago, according to RealtyTrac’s October 2015 U.S. Home Sales Report.  The following metros had the highest share of cash sales in October:

 Homosassa Springs, Fla.: 61.4%

  1. Naples, Fla.: 60.1%

  2. Columbus, Ga.: 54.9%

  3. Miami, Fla.: 53.7%

  4. Greeneville, Tenn.: 52.8%

  5. The Villages, Fla.: 52.2%

  • Martin Shkreli, the Bad Boy of Pharmaceuticals, Hits Back (The New York Times)  Shkreli has made a video to make his point that new drugs — especially for rare conditions — don’t come cheap and someone has to pay for them. This is more truism than earth-shattering revelation. But Mr. Shkreli has become a public villain for twisting that notion to apply to a decades-old drug that Turing merely acquired. By raising the price of that drug overnight to $750 a pill from $13.50, Mr. Shkreli became a caricature of pharmaceutical industry greed.


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